Intergenerational Transmission of Wealth

Wealth and Well-Being

Wealth impacts the standard of living and economic well-being of families and individuals. Greater levels of wealth ownership are associated with increased family stability, higher levels of educational and occupational attainment among offspring, and a decreased likelihood of welfare dependency among offspring. Although income has been used by researchers more often than wealth as an indicator of financial well-being, wealth provides additional benefits, such as increased financial security, and is more closely associated with social prestige and political power. In addition, wealth can be used to accumulate more wealth and can be transferred to others. Wealth holdings may provide an income flow that does not require a trade-off between time devoted to work and time devoted to leisure and that is not decreased in times of illness or unemployment. In contrast to income generated through employment, wealth holdings are taxed at a lesser percentage, and the principal can be consumed in times of economic crisis. Moreover, the financial security provided by wealth may make additional savings from earned income unnecessary, thereby potentially leading to different consumption patterns and different standards of living among families with identical household incomes but different levels of wealth.

Study and Measurement of Wealth

Despite the impact of wealth on standard of living and economic well-being, until the 1980s the study of wealth was pursued primarily within the subfield of “elite studies.” It was not until the 1980s that researchers began to attempt to understand how even modest levels of wealth impact standards of living and economic well-being in a larger portion of the U.S. population, not just the very wealthy elite. The buildup of home and pension equity within the U.S. population since World War II and the increased availability of household wealth data collected in several nationally representative surveys [Page 1226]during the 1980s led economists to begin to study the distribution and acquisition of wealth in the average American family. In the following decade, sociologists began to study wealth and its intergenerational transfer as an important dimension of inequality; however, issues of data availability and measurement make the study of wealth ownership and transfer difficult.

Unlike income data, which are widely available and relatively straightforward to measure, data on wealth ownership are less widely available, and the value of wealth holdings is much more difficult to measure. The three sources for obtaining data on wealth ownership are survey data, estate tax records, and the government's aggregated estimates of household wealth. Due to the complexity involved in assessing the value of the various components that constitute wealth, the lack of a standard set of wealth-related questions across surveys, inaccuracy in respondents' estimates of the value of their various assets, a high rate of refusal in responding to questions about wealth holdings, and the failure of some surveys to oversample high-wealth households, estimates of household wealth are much less consistent from survey to survey than are estimates of income. Due to the many loopholes in estate tax laws, estate tax records, which have been used in an attempt to estimate the wealth holdings of the very wealthy, are also unlikely to lead to accurate estimates of wealth ownership. In addition, since it was not until 1962 that a survey of a large, nationally representative sample included questions about household assets, and since the next significant follow-up survey of asset holdings did not take place until 1983, longitudinal trends in household wealth distribution and the intergenerational transfer of wealth are difficult to estimate accurately.

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